Federal Reserve begins to plan stimulus wind-down

Jon Hilsenrath of the Wall Street Journal has a reputation for reporting on the inner workings of the U.S. Federal Reserve, with suspected guidance from officials within the American central bank. Regardless of his sources – as we've examined in past posts on this blog – the latest missive from Hilsenrath shined a light on the latest Fed machinations, which relate to the eventual wind-down of its extensive monetary stimulus programs.

According to a May 11 publication in the Journal, the Fed is actively seeking a comprehensive plan for reducing its current iteration of quantitative easing, which at present accounts for roughly $85 billion in bond purchases each month. Hilsenrath stressed that Chairman Ben Bernanke and his lieutenants are being extremely cautious about the prospect of triggering a broad market sell-off, considering that the Fed's generous liquidity offerings each week are suspected of keeping prices at artificially elevated levels. Investors, therefore, should expect to see a slow, step-by-step process. 

Recent statements from regional Fed presidents, including Richard Fisher of Dallas, indicate that the central bank will not simply pull the plug. In an interview, Fisher noted that "[The Fed] ought to dial it back" in a bid to keep market participants from panicking. 

However, it remains to be seen how clean the monetary exit will actually be. Interest rates will surely creep up, although the rate and intensity of these movements are tough to predict. The possibility also exists that the Fed could slow or even rewind its stimulus reduction if officials suspect that the U.S. economy is beginning to teeter once more.

These developments suggest that stock markets could be in for a bumpy ride over the next 18 months, potentially imperiling some people's source of income. As such, it might be wise to pursue a more independent investment strategy, which includes cash flow real estate. To learn more, download our "Free Game Plan Report" today.